New corporate offence: Failure to prevent economic crime: In September 2016, the government announced a consultation on this proposed new offence, and we expect legislation to be enacted during 2017. The offence will be based on the existing corporate offence in the Bribery Act and have wide extra-territorial reach. In our view, it will greatly extend the exposure to criminal liability that companies currently face.
Financial Crime: AML compliance: The Financial Conduct Authority’s (FCA) Business Plan for 2016–17 has tackling financial crime as a top priority. The FCA intends to make the UK financial system a ‘hostile sector for money launderers’. The oversight gained from the new Senior Managers Regime and Financial Crime Annual Data Return, plus continued scrutiny of authorisation applications, will increase the compliance burden on financial services firms and lead to tougher sanctions.
Corruption: ABC compliance: The Bribery Act is now five years old but there is little clear compliance guidance available in relation to the adequate procedures defence. The International Standards Organisation has recently published a draft standard ‘ISO 37001 – Anti-bribery management systems’, which is intended to reflect international good practice on anti-bribery and corruption. Businesses will be able to apply for certification and compliance with the ISO standard, which may in future be scrutinised by enforcement agencies.
SFO prosecutions: The Serious Fraud Office has a number of significant, long-running investigations ongoing, on which decisions are likely in 2017. Many involve pre-eminent UK businesses and the outcomes achieved by the SFO in these matters may have a significant bearing on the future of the agency. In turn, this may impact on the government’s objective of ensuring that businesses engage constructively with law enforcement authorities.
In Focus: Enforcement
Enforcement of criminal offences committed by companies has historically been achieved through prosecution, conviction and the imposition of fines. Prosecutors have, though, long struggled with the difficulty in prosecuting companies, due to the need to establish that the underlying criminal conduct was committed by the “controlling mind” of the company.
The Bribery Act 2010 sought to redress that imbalance with the enactment of an effectively strict liability offence of failing to prevent bribery. As discussed above, the government looks set to extend that principle to cover all offences on economic crime. The authorities in the UK have also been keen to seek greater cooperation from the business community in tackling corporate crime. To this end the Crime and Courts Act 2013 introduced the possibility of a company securing a Deferred Prosecution Agreement (DPA). DPAs in many ways replicate the system in the US but, in contrast to the US, require a significant degree of judicial oversight and ultimate approval, following an objective assessment of all relevant issues.
There is no obligation on the SFO to offer a DPA, but if one is proceeded with, it is likely to set out a number of terms, including:
- the payment of financial penalties and compensation;
- providing full cooperation with the investigation – including cooperating with future prosecutions of individuals; and
- monitoring arrangements to ensure that the terms of the DPA are complied with.
The SFO’s position is that a DPA is only likely to be offered if the company concerned has self-reported the issues to the authorities.
To date we have only seen two DPAs, involving Standard Bank and XYZ Limited (XYZ has been anonymised by the court due to a related ongoing prosecution). Both companies self-reported and demonstrated full cooperation. In contrast, Sweett Group PLC did not, in the SFO’s view, show sufficient cooperation, and was therefore prosecuted and pleaded guilty to failing to prevent bribery.
What these cases show is that the courts, in appropriate circumstances, will be prepared to adopt a flexible approach to ensure that any proposed sanction is reflective not just of the wrongdoing, but also of other relevant facts, such as the financial health of the company concerned and the involvement or otherwise of any related parent company.
We expect to see continuing and increasing use of DPAs in the future, but the decision to self-report should only be taken after very careful consideration, having received all necessary expert legal advice.
Dates for the diary
27 June 2017
Final date for implementation of the EU’s Fourth Anti-Money Laundering Directive (MLD4). MLD4 will apply to more firms and transactions than the previous regime and contains specific provisions for tax crimes, trusts and sanctions.
Anticipated enactment of a new offence of failing to prevent economic crime.
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